452. Guy Halfteck, The Effects of Incentives to Invest and the Level of Investment in Class Action Law Enforcement On the Magnitude of Liability for Harm, 12/2003.
Abstract: Class action law enforcement comprises a sequential, multi-stage investment opportunity under conditions of multi-dimensional uncertainty. This general proposition suggests that the myriad aspects of plaintiffs' attorneys' performance in the course of class action law enforcement can be treated and analyzed as sequential options to invest and sequential investment decisions. Thus, the extent to which private agents employ the class action mechanism to enforce the law is contingent upon their incentives to invest and the investment decisions they ultimately make throughout the multi-stage investment sequence. Against this backdrop, this Article examines the compound correlation between (i) the magnitude of private incentives to invest, (ii) the corresponding, aggregate level of investment, (iii) the magnitude of ex ante expected liability for systematic, mass-inflicted risk of harm and, consequently, (iv) the deterrence effects of class action law enforcement. Notwithstanding the observation that the specific properties of this correlation are highly law firm- and context-specific, the analysis generates unambiguous insights into the general properties of this correlation. These insights are germane to making qualitative statements on the existence of discrete, privately-optimal level of investment in class action law enforcement; the existence of discrete social optima; and the efficacy of possible regulatory intervention to bridge the private-social incentive divergence.